6 minute read
FINANCE
Diesel Surcharge issue must be addressed in times of crisis
The biggest key issue for Irish road transport operators since the invasion of Ukraine has been the
escalating cost and fluctuation in diesel pricing. Factors totally outside operators’ controls have put businesses at risk, and without the swift and determined
application of diesel surcharges by haulage operators, will put them out of business.
Key to any discussion with customers is to set out as quickly as possible the reasons and rationale behind the requirement for a surcharge. Many transport firms have diesel surcharges in place, usually since diesel last spiked, and this is clearly seen by the operator and customer as the fairest method of applying a fluctuating cost to the rate tendered.
When discussing how a surcharge will apply, it is advisable firstly to meet with customers - or at least speak with them and outline how the surcharge will apply. Outline what base cost of diesel will trigger a surcharge and on what basis fuel costs will be monitored, so the surcharge is fair and equitable. If there is Government support available, then be up front on how this will alter the surcharge (the current €100 weekly per truck support is equivalent to a 7 cent per litre contribution). Explain also that this current contribution has been the first assistance from Government to address spiralling costs of operation. So, if you have not received a rate increase, any Government contribution need not effect your surcharge.
Once surcharge is explained and how it operates, document the system in writing and e-mail it to the client with clear dates as to when it will apply. It’s fair to say that the customer expects value for money, and while a surcharge of 5% to 10% may not seem significant, it’s the difference between a profitable or unprofitable haulage business for many.
If operators fail to interact with customers in this crisis and do not apply a surcharge, those customers will assume one of only two reasons for this. Firstly, the margin is so high that the diesel cost may be absorbed, or secondly, that the business is being mismanaged and the surcharge was not needed! In both cases the operator runs the risk of losing the customer as: a) no customer will knowingly pay over the odds and b) no customer in the current economic crisis will risk use of a financially weak operator, as going to the market for a service provider now only means a substantial cost increase.
In the current climate of fluctuating fuel costs, any haulage business must have diesel surcharges in place to guarantee margin and show financial institutions, which will have to increase short term working capital, that the firm is a safe risk.
The cost of fuel highlights the obvious differences between well managed transport firms that have good financial practices in place and other transport firms that are struggling and operating outside their overall capacity, whether that is operationally, financially or managerially. Strong companies have a financial cushion to call upon in crisis. They immediately react to key factors and implement change, and their cost of operation and overall business style is best in class well before financial pressure comes to bear. These companies make fleet and operational decisions based on lowest operating cost (diesel has always been a number one factor) while realising that surcharge, rate review, operational productivity are all important in achieving and retaining a consistent bottom line margin.
In this crisis the lessons learned are that surcharges, rate reviews, productivity of vehicle utilisation and cost are a constant requirement that companies must keep fine tuning and perfecting. Now more than ever financial systems that give timely and accurate data on the profitability of customer/vehicle/ work type are essential in order to make a decision on what is needed from the customer. Or is the customer or work type dragging the business, margin and tolerance down?
Government’s Green Policy is flawed
Like many within the road transport industry in Ireland, I believe that the Government’s Green Policy is fundamentally flawed. And I would go as far as to say it now encourages the abandonment of low emission vehicles.
In the policy it is stated that all funds from the Carbon Tax shall be ploughed back into the economy to reduce the country’s emissions.
The haulage sector pays over €200,000 per day in Carbon Tax. To the Government, the sector is simply a cash cow, a stream of income that is being milked to death. After all, why change anything and lose their income?
Yet, all those operators that have bought and run lower emission HGVs (Euro 6) have not received one cent for their extra expense and trouble. These trucks use more AdBlue in comparison to their exhaust emission controlled Euro 5 engines and pay exactly the same at the fuel pump, for tolls, and road tax.
To prove the point that the Government encourages the abandonment of low emission HGVs, I recently met the owner of a truck dealership from where I had bought several trucks over the past few years. In discussions about trading in a Euro 5 for a Euro 6 truck, he said that he would now offer around €35,000 profit (money back plus €35k) if I wanted to sell back the two most recent Euro 6 trucks which I had bought from him! As I have two Euro 5 tractor-units parked up, this offer totally blindsided me. But no way, I’m keeping the Euro 6s as per our Green Policy. The Government seems intent on trying to pull the wool over the eyes of the public with claims of reducing carbon emissions and putting Carbon Tax funds back into the country. The perfect example is the recently introduced deep retrofit for housing. I’m not against upgrading homes, as I live in a house that is over 100 years old and several years ago was reroofed as well as given exterior insulation. But when you do the maths on this new grant, it doesn’t make sense to dish out €25,000 if a home uses 1,000 litres of home heating oil per year. Currently, the Carbon Tax for 2022 is €114 per thousand litres. For the Government to recoup its grant, it will take 219 years, not great value for money by all accounts.
But perhaps the €200,000 a day the haulage operators are paying will soften the blow, as the Government will give the haulier absolutely zero.
For a long time now, road transport operators have been crying out for an alternative. Compressed Natural Gas (CNG), was the fuel that was going to change everything, but it’s a while coming. The GNI brochure from 2016 said that Ireland would have 28 stations by 2021, sadly the reality is that we now have 3 public filling points.
There is so much that can be done that will cost little or nothing to the Government but will increase the uptake of Low Emission Vehicles. Just a few examples include a greater Capital Allowance, reduced tolls as per CNG, and a greater Essential Fuel Rebate..
Just when will the penny drop to those involved in Government?
Best Regards, Wm Cyril Mc Guinness
TRANSPORT
www. eet.ie Engaging Connectivity
